Earnings bubble ?

Semiconductors used to be a classic cyclical business: boom, overcapacity, bust, then recovery. For investors, that made the sector difficult to own over the long run.
AI has clearly changed the current picture. Earnings are booming and, because profits have risen so sharply, valuations do not look obviously stretched on current numbers.
The real question is therefore not whether the sector looks expensive today. The question is whether the current earnings base is sustainable. If AI demand remains durable, today’s valuations may be justified. If part of the demand has been pulled forward, the risk is that we are not in a valuation bubble, but in an earnings bubble.
In semiconductors, peak earnings have always had one dangerous feature: they can make expensive stocks look cheap.
At ECP, we remain constructive on the structural AI opportunity, but selective. The market is increasingly pricing the sector as if the current earnings trajectory can continue for a long time. That may happen, but it is no longer the conservative assumption.